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Check the fine print on home insurance policies

If you have ever had difficulty making a claim to your insurance company, for any loss, then you understand that insurance coverage needs to be researched and understood clearly before you buy any policy.

(SHUTTERSTOCK)

By Mark WeislederSpecial to the Star

Fri., Sept. 11, 2009

If you have ever had difficulty making a claim to your insurance company, for any loss, then you understand that insurance coverage needs to be researched and understood clearly before you buy any policy.

This is especially true when buying home insurance. Besides the fine print, there are many factors that can affect not only your ability to make a claim, but your ability to obtain insurance coverage at a reasonable premium.

Many buyers leave the insurance coverage for their new homes to the last minute, thinking that it is only a matter of paying the required premium. As a result, certain issues arise:

How much insurance do you really need?

What does the fine print say – especially about water damage?

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What if the buyers have made claims under their previous home policy?

If the home has perceived insurance "risks," such asbestos insulation, knob and tube wiring or a buried oil tank, will this affect your premium? If so, can the buyer cancel the transaction?

A common mistake many buyers make is to obtain insurance coverage for the entire value of their home purchase. This is wrong.

Most insurance policies will only pay the cost to rebuild your home if it is damaged or destroyed, so there is no need to obtain any more insurance than that. The only insurance you need is to replace your home and your personal possessions in the event of damage, vandalism or destruction.

Are you covered for water damage to the basement, whether through flooding or sewer backup? Ask these questions in advance, as many homeowners have learned after the fact that they are not covered for either of these events. Read the fine print clearly for an explanation.

Simple things such as increasing your deductible by $500 or having a monitored alarm system can decrease your annual premium.

Obtaining insurance coverage is not "automatic." Buyers will be considered based on many factors, including prior claims that they may have made under other insurance policies.

Furthermore, the insurance company will send its own appraiser to determine the risk associated with the home itself. If the appraiser find deficiencies which could present added risk, the insurer may decide to increase the premium or refuse to insure the home altogether.

Examples of increased risks include a wood-burning stove, knob and tube wiring and asbestos insulation.

If there has been an oil spill on the property or a buried oil tank that has not been brought up to provincial standards, or a grow house that was not properly repaired, insurance coverage may be refused completely.

Let's say an average insurance premium for the kind of home you are looking for is $1,500, but as a result of the increased risk, the insurer will only provide coverage for $4,000. Can the buyer refuse to close?

Under the standard resale agreement of purchase and sale form, the buyer will not be able to refuse to close.

Accordingly, buyers should consider adding a condition to any agreement that provides that if the buyer is unable to obtain insurance coverage at a reasonable premium, then the buyer can cancel the transaction without penalty.

As you can see, you need an insurance professional working with you when starting to look for a home to explain everything, the same way that you need a mortgage loan professional, a real estate agent and a legal adviser.

A good place to start is to interview several insurance brokers in advance.

Ask for references from family, friends as well as your real estate agent. Do not be afraid to ask questions.

By understanding the entire process of home insurance, you can be secure in the knowledge that you will protect your home purchase investment, both before and after you close your transaction.

Mark Weisleder is a lawyer, author and public speaker for the real estate industry and a regular contributor to Real Estate News. Visit markweisleder.com.

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